Repossessions on the rise in slow economy

[cashlenders]

From his office in Plainview, David Maltz has a front-row seat on the economy. And these days, the view isn't pretty.

Maltz and relatives run David R. Maltz & Co. Inc., a 30-year-old auction business that handles cars, commercial trucks, motorcycles, boats, real estate, restaurant equipment and many other items repossessed or seized for nonpayment of taxes. The company sells to dealers and individuals and works mostly for financial institutions and government agencies.

About half the cars that come in have been repossessed, said Maltz, and the number has been growing as more Americans - their budgets under siege from rising energy and food prices and, if they have variable-rate mortgages, from rising interest rates as well - fall into a black hole of debt.

So, too, have the boats, motorcycles and just about everything else they handle.

On a recent Tuesday morning, in a shed warmed by temperatures in the 80s, auto exhaust fumes mixed with the cacophony of at least a half-dozen languages as about 130 cars were driven one by one to a stop in front of a podium to be auctioned. In professional rapid-fire style, Maltz sold them one by one to about 200 buyers. About half were dealers, and nearly everyone was in casual attire.

"I hope it's a good price," said an elderly woman who had just purchased a repossessed 2006 Chevrolet Malibu for a bid of $6,500.

Maltz's isn't the only local business that's seen more repos. In Hampton Bays, Scott Perlow of Rapid Towing says he's seen about a 20-percent increase this year in the items in which he specializes: construction equipment such as that used by builders and landscapers.

"People are in debt over their heads," he says.



Store furnishings, too

Maltz can vouch for that. Though much of his business involves automobiles, that's not his biggest growth sector. He said the biggest increases among the goods he handles have been in the furnishings and equipment for retail stores and restaurants - more than he has seen since the last major recession. "It's the late '80s and early '90s again," he said.

The numbers are up, he said, because of the slowed economy and the soaring prices for fuel to power things that run on gasoline or diesel fuel. He added that rising fuel prices have reduced the value of many boats, making it still more difficult for customers behind on payments to sell them and pay what they owe to the financial institution.

At Nassau Asset Management of Hicksville, which specializes in commercial and industrial assets, president Ed Castagna said the first negative economic symptom he saw, about a year and a half ago, was an increase in commercial trucks. Most of them were owned by smaller, so-called "independent" operators, not affiliated with major fleets. "It could be one guy and one truck or a small fleet of five or 10 or 15 trucks," he said.

Since then, he said, he's seen increases in construction equipment and machinery used in manufacturing. "What we're noticing right now, which we feel is a trend, is we are starting to see some machine tools," which include metal-cutting machines such as lathes, drills, grinders and planers.

Normally, he said, he sees an increase in them only when the economy has weakened significantly. "We're not seeing a ton of them, but we've gone from seeing none to some," he said. "The last time we saw a real upturn in them was after 9/11."

Castagna's company sells via Internet bids, not auctions. Like Maltz, he's seeing more restaurant equipment. He said little of it is coming from major franchise chains and what's arriving isn't from specific geographical areas. "It's all over the country," he said.

Figures for anything other than repossessed cars are hard to come by, but repossessions of cars rose by 5 percent in 2006 over 2005 and by another 10 percent last year, to 1.5 million vehicles, as estimated by Manheim Consulting, a unit of the giant auction firm.

The number is expected to rise again this year by another 10 percent to 20 percent, depending upon the forecaster.

Big jump in autos

"The first quarter of 2008 brought to the auto finance industry a significant increase in delinquencies and repossessions, especially among finance sources with higher-risk portfolios," Atlanta-based BenchMark Consulting said in a report earlier this year for its client, the National Automotive Finance Association. The group represents lenders who specialize in high-interest, subprime loans to high-risk customers.

That means more work for people like Sal LoDico, who runs Midnight Towing out of an office in Centereach and whose five trucks collect, he said, between 30 and 50 cars a week on Long Island and in Queens, Brooklyn and Staten Island.

"Is repo-ing up on Long Island? I would say yeah," he said. But the biggest surge, he noted, was earlier in the year. More recently it has leveled off.

Threats from owners

It can be a rough business. LoDico said that in 18 years in the business, he and his workers have been confronted by people with guns and have had bricks tossed at their trucks. Verbal challenges by irate owners aren't unusual, those in the business say.

"I've seen people come running out in their underwear," says Milt Dexheimer, president of New York Recovery Inc., a repo company based near Syracuse that works upstate and downstate. He says $400 to $500 is a typical basic repo fee, but storage and locksmith charges can increase that.

Repos of boats also are said to be on the increase, though figures are hard to come by. "At the beginning of the season there was a huge increase," said Maltz. "People were just calling the banks and saying, 'Come and pick it up.'"

Maltz's partner, Tom Qualliotine, says the ones they auction have varied widely in size. "In the past 12 months we've had everything from a 14-footer to a 42-footer," he said.

As defaults and repossessions have increased, many lenders have tightened credit for almost everything. A spokeswoman for Chase Automotive Finance, a major auto lender, wrote in an e-mail: "We are asking buyers to make larger down payments and limiting loan terms to 72 months for buyers with lower credit scores."

Maltz said, however, that some lenders are giving consumers extra time to repay before they repossess.

Tom Kontos, chief economist for Adesa Analytical Services of Carmel, Ind., a unit of the company that owns an auto auction in Yaphank and 59 others in North America that handle repossessed and other vehicles, said the number of cars coming into the auctions rose by 20 percent to 30 percent earlier this year because of a rise in the number of repos and vehicles turned back by consumers who leased.



Long loans a factor

Easy credit and longer-term auto loans - often six and seven years - also are factors in the rise in repossessions. While longer terms mean lower monthly payments, they also increase the time that the consumer is "upside down" - owing more than the vehicle is worth. The consumer in that situation who can't make the payments can't just sell the vehicle and pay off the bank to avoid a repossession.

Maltz, who typically sells 100 to 150 cars at his biweekly car auction, said he expects to see more repos of the various goods he handles in coming months. "I'm about six months behind the economy," he said. "It has to work its way through."

OF INTEREST

Procedures vary by lender, but GMAC Financial Services says reposession activity normally begins when payments are 60 days past due.

IF YOU FACE REPOSSESSION

If you're falling behind on car payments and face repossession:

Talk to your lender - the sooner the better - and explain the situation. Often, lenders will work with borrowers to restructure the loan or delay payments. Financial institutions lose thousands on each car they have to repo.

Enlist the help of a credit counselor in negotiating with the lender. Counseling is available free or at low cost from a variety of nonprofit groups, credit unions and others. They also can help you set up a realistic budget and plan expenditures. One place to start is the National Foundation for Credit Counseling, online at nfcc.org or at 800-388-2227.

If all else fails, it's better to surrender the car than force the lender to repo it because the lender's cost of recovering the car can be passed on to you.

State laws vary, but in New York motor vehicle law requires that a repossessor immediately notify the local police after they take a car and also to file a notice of repossession within 24 hours with the vehicle owner and the Department of Motor Vehicles.

Consider consulting an attorney if a repo is pending or has already occurred.

More info is available on this and related credit subjects at ftc.gov.

Sources: Federal Trade Commission, American Financial Services Association, New York State Dept. of Motor Vehicles, New York State Attorney General's Office